Question

Ben Bates graduated from college six years ago with a finance undergraduate degree. Since graduation, he has been employed in the finance department at East Coast Yachts. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program.

Ben’s annual salary at East Coast Yachts is $57,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 40 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Ben has a savings account with enough money to cover the entire cost of his MBA program. page 129

The Ritter College of Business at Wilton University is one of the top MBA programs in the country. The MBA degree requires two years of full-time enrollment at the university. The annual tuition is $63,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $2,500 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $105,000 per year, with an $18,000 signing bonus. The salary at this job will increase at 4 percent per year. Because of the higher salary, his average income tax rate will increase to 31 percent. The Bradley School of Business at Mount Perry College began its MBA program 16 years ago.

The Bradley School is smaller and less well known than the Ritter College. Bradley offers an accelerated, one-year program, with a tuition cost of $75,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $3,500. Ben thinks that after graduation from Mount Perry, he will receive an offer of $88,000 per year, with a $15,000 signing bonus. The salary at this job will increase at 3.5 percent per year. His average income tax rate at this level of income will be 29 percent.

Both schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Ben also estimates that room and board expenses will cost $2,000 more per year at both schools than his current expenses, payable at the beginning of each year. The appropriate discount rate is 6.1 percent. Assume all salaries are paid at the end of each year.

1) How does Ben’s age affect his decision to get an MBA?

2) What other, perhaps nonquantifiable factors, affect Ben’s decision to get an MBA?

3) Assuming all salaries are paid at the end of each year, what is the best option for Ben—from a strictly financial standpoint?

Answer 1

'casion logo Bovided - 18 years old by kwo institution stress at Wilton Univers by ou How does Ben's age oftect his deusion. an MBA" An According to the information provide - Ben's age at present is 8 years - MBA programs aftered by two The Ritter college of Business at Willón тв А. а - Two yeau ful-time (3) The Bradley School of Business at Maut Perry MBA One year prozaam. - Ben's expeclate on to work for 40 more you from the above information iz Ben Opts for Two-year program then he will receive a job offer at the age of 30 years. - Ople for one year program then he will receive a job offer at the age of 29 years. The ultimate decision to get an MBA of Ben affect his expectation to work for 40 more years will be reduced to 38 years oor 39 years. Scanned with CamScanner

5a). Non-quantifiable faclovs , (a) Six years experience in finance department may be interrupted due to MBA program. & Relation and good will with East Coast Yachts may be end due to MBA program. & Two year or one year MBA program reduces the years of earning of Ben. idy Fulüse is uncertain "So expectation of job offer after MBA is uncertain. MBA - 1 year program 75.000 3 Ans) Financial Standpoint , MBA-Lyear Particulars ni program program Annual Tution feet due 1, 26.000 Books & other supplies 5,000 6,000 Heallh Insurancel a 4,000 Room & Board Expenses Total cost 1,41,000 Less: Appropriate Discount' .8,601 @ 6.1/1 Net 1, 32,3990 cost 3,500 3,000 2,000 83,500 5 093 78,407 Scanned with CamScanner

Expoched Salary 10, tick with o MBA-years. Particular Mont 1,05,000 88,00 Salary .. : Signing Bonus i 0 18,000 :15,00 1,03,000 29,810 1,23,000 38,130 84,870 3,395 Loss Tax 31% & 29% Net Income Add: Increment 47.8 3.54.5. Estimated Income 73,120 2,560 88,265 di 75,690 Best option for Ben according to above data MBA in The Bradley school of Business - MBA with One year program cost can be le covered will One year salary - Ben years of earnings can be increased. to one year compare to MBA a year progen - Taxable liability is low s » The increment of file can be compensales to with lax percentage of 29 % Scanned with CamScanner